Arctos Partners' Ian Charles on investing in sports

Key Concepts

• Premium Global Sports Brands: Primarily North American professional sports leagues (NBA, NFL, MLB, NHL) and major European football/Formula 1 franchises.
• Intellectual Property (IP): The core value driver behind the broader sports ecosystem, residing with leagues and teams.
• Emergent Leagues: New or developing sports leagues.
• Picks and Shovels Businesses: Supporting industries like sports gambling and sports technology.
• Anti-Cyclical: Performing well even during economic downturns.
• Anti-Fragile: Improving with increased volatility or stress.
• Uncorrelated: Performance not directly tied to broader market trends.
• Underlevered: Relatively low debt compared to asset value.
• Beta Factor: A measure of systematic risk or volatility relative to the market.

Focus on Premium Sports Assets

The discussion centers on investment within the sports industry, specifically differentiating between the core “sports” themselves and the surrounding ecosystem. The speaker clarifies that their focus isn’t on the broader “sports ecosystem” – encompassing media, technology, or retail – but rather on a concentrated group of 150-200 “premium global sports brands.” These are defined as predominantly North American teams within leagues like the NBA, NFL, Major League Baseball, and the National Hockey League, alongside globally significant franchises in European football and Formula 1 racing. The speaker emphasizes that these leagues and teams own the intellectual property (IP) that drives value in the surrounding industries.

Distinguishing Core Assets from Supporting Industries

A key distinction is made between investing directly in teams/leagues versus investing in “picks and shovels” businesses. “Picks and shovels” refers to supporting industries like sports gambling and sports technology. While acknowledging these areas could present interesting investment opportunities, the speaker asserts they lack “unique inherent characteristics or beta factor” – meaning their performance is likely correlated with broader market trends and doesn’t offer a distinct advantage.

Unique Characteristics of Premium Sports Assets

The core argument revolves around the unique resilience and performance characteristics of these premium sports assets. They are described as anti-cyclical, meaning they tend to perform well even during economic downturns. This is further strengthened by being anti-fragile – improving with increased volatility or stress. Crucially, their performance is uncorrelated to broader market trends, offering diversification benefits. Furthermore, these assets are considered underlevered, possessing relatively low debt levels compared to their overall value.

Performance and Investment Horizon

Despite these durable attributes – anti-cyclicality, anti-fragility, uncorrelated performance, and being underlevered – the speaker states that these premium sports assets have historically performed “on par with or better than public equity and private equity” over “really long horizons.” This suggests a compelling long-term investment case.

Intellectual Property as the Core Value Driver

The speaker reiterates the importance of intellectual property, stating, “We think the intellectual property that powers everything you just described is owned by the leagues and the teams in the premium North American sports…leagues.” This highlights the belief that the value generated by the entire sports ecosystem ultimately stems from the brands and rights controlled by the leagues and teams themselves.

Emergent Leagues as a Separate Consideration

The discussion briefly acknowledges the existence of emergent leagues as a separate investment consideration, though the primary focus remains on the established, premium brands.

Conclusion

The central takeaway is that investing in premium global sports brands – particularly those in North American professional leagues and major European sports – offers a unique investment profile characterized by resilience, uncorrelated returns, and strong long-term performance. This is driven by the inherent value of the intellectual property owned by the leagues and teams, differentiating them from supporting industries like sports gambling and technology.